Chatham Lodging Trust Third Quarter Hotel RevPAR U 5.8 Percent

2012-11-07
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  • Chatham Lodging Trust Comparable GOP Margins grew 180 basis points to 46.2 percent. Five of Chatham’s 18 hotels were acquired during the 2011 third quarter.

    Chatham Lodging Trust (NYSE: CLDT), a hotel real estate investment trust (REIT) focused on investing in premium-branded, upscale, extended-stay hotels and select-service hotels, today announced results for the quarter ended September 30, 2012.

    “We appreciate the support of our lenders as we continue to build Chatham into a premier owner of upscale, extended-stay and premium-branded, select-service hotels”

    In addition, the company announced that it amended its senior secured revolving credit facility to increase the line of credit to $95 million and lower costs by approximately 250 basis points.

    Third Quarter 2012 Highlights

    • Hotel RevPAR – Rose 5.8 percent to $114.
    • Adjusted EBITDA – Increased 48.5 percent, or $3.9 million, to $12.0 million.
    • Adjusted FFO – Improved adjusted FFO per diluted share 39.4 percent to $0.46, in line with consensus estimates.
    • Comparable GOP Margins – Grew 180 basis points to 46.2 percent. Five of Chatham’s 18 hotels were acquired during the 2011 third quarter.
    • Joint Venture Portfolio – Continued to exceed internal budget expectations for RevPAR and EBITDA. Received distributions of $1.7 million in the third quarter, bringing total distributions to $20.9 million or 56.5 percent of Chatham’s initial investment in the joint venture.

    Consolidated Financial Results

    The following is a summary of the consolidated financial results ($ in millions, except RevPAR, ADR, occupancy and per share amounts):

       
    Three Months Ended Nine Months Ended
    September 30, September 30,
    2012   2011 2012   2011
    RevPAR $114 $108 $109 $100
    ADR $132 $128 $131 $126
    Occupancy 86.2% 84.4% 82.9% 79.4%
    Adjusted EBITDA $12.0 $8.1 $32.5 $15.1
    Comparable GOP Margin 46.2% 44.4% 45.3% 43.6%
    Comparable Hotel EBITDA Margin 39.0% 37.9% 38.4% 36.5%
    Net income / loss $1.5 $(1.0) $0.9 $(2.9)
    AFFO $6.4 $4.5 $15.2 $9.3
    AFFO per diluted share $0.46 $0.33 $1.10 $0.71
     

    Market Share Gains and Fundamental Improvements Lead Operating Results

    “Our portfolio continues to produce strong results with third quarter RevPAR improving 5.8 percent and all other metrics continuing to advance nicely,” said Jeffrey H. Fisher, Chatham’s president and CEO. “Our hotels enjoy a competitive advantage due to the substantial renovations we made to our portfolio, and we continue to see market share gains in both rate and occupancy.

    “Our wholly owned portfolio achieved a RevPAR Index premium of 121 percent in the 2012 third quarter, and we believe there is opportunity for further improvement,” he said. “New supply growth in our markets remains at a minimum, and the barriers to new competition are high.

    “Room rate increases now make up more than half of the improvement in RevPAR which we view as quite positive,” Fisher added. “As we move into 2013, we expect the predominant driver of RevPAR advances for our portfolio to be from rate which will enhance our already strong operating profit margins.

    “Our joint-venture investment continues to outperform hotel industry averages and generate very strong returns,” Fisher stated. “These results validate our business plan to generate superior returns for our shareholders by investing in high quality, premium-branded hotels in high barrier-to-entry markets, acquired at attractive prices that can benefit from strategic asset management and experienced operators.”

    During the quarter, the company transitioned the last of the six Homewood Suites by Hilton hotels previously managed by Hilton to Island Hospitality. For the quarter, RevPAR at those properties increased 6.3 percent.

    Joint Venture Results Exceeded Budgeted Expectations

    Chatham holds a 10.3 percent interest in a joint venture (JV) that currently owns a 55-hotel portfolio, comprising 7,282 rooms.

    The JV previously announced plans to sell 13 non-core assets. During the 2012 third quarter, the JV sold three hotels, bringing total dispositions to eight non-core assets. The sale of the remaining five hotels is not expected to have a material impact on the JV’s portfolio results as they are mostly unbranded hotels. Upon completion of the sale of the remaining five hotels, the JV expects to receive additional net proceeds of approximately $6 million.

    The company received distributions of $1.7 million from the joint venture attributed to cash flow from operations and asset sales during the 2012 third quarter, bringing total distributions to Chatham of $20.9 million year-to-date.

    “The joint-venture portfolio’s performance has been outstanding, with RevPAR growing significantly more than the industry average, strong margin growth and cash distributions ahead of our original expectations,” Fisher said. “With Chatham’s net investment after distributions now approximately $16.1 million, our JV investment is producing strong, double digit, leveraged returns in the first year of the partnership.”

    Capital Structure

    As of September 30, 2012, the company had debt outstanding of $208.7 million at an average interest rate of 5.8 percent. Net debt was $203.0 million at September 30, 2012. Chatham’s leverage ratio is 48 percent based on the company’s investment in hotels at cost and its investment in the joint venture at cost. “During the third quarter, we continued to generate significant free cash flow, allowing us to pay down $5.4 million of debt during the third quarter, on top of the $8.9 million of debt we paid down in the second quarter,” said Dennis Craven, Chatham’s chief financial officer.

    “We experienced only minor damage and power disruptions at several of our hotels due to Hurricane Sandy,” Craven added. “Looking ahead, we will begin in the 2012 fourth quarter planned renovations at our Residence Inns in New Rochelle, N.Y. and Anaheim, Calif., which will be completed in the 2013 first quarter. Our portfolio will be in top physical condition with our next renovation, one hotel, not scheduled until 2014. With our joint venture investment and our wholly owned portfolio producing solid results and cash flow, we expect to continue to generate free cash flow which we will use to further reduce debt and/or acquire hotels.”

    Fisher commented, “We will continue to opportunistically look at ways to grow Chatham’s returns without raising equity in the current market. We have several sources of funding, including using free cash flow generated from operations, distributions from the joint venture and recycling capital profitably by selectively disposing assets.”

    Line of Credit Amendment Provides Greater Capacity, Lowers Costs

    Chatham also announced that it successfully amended its senior secured revolving credit facility. The company currently has approximately $46.5 million available on its line of credit. On November 5, 2012, the company completed the amendment which extends the maturity date to November 5, 2015, and includes an option to extend the maturity by an additional year. Other key terms amended include:

                 
          Original Terms     Amended Terms
    Facility amount     $85 million     $95 million
    Accordion feature     Additional $25 million     Additional $20 million
    LIBOR floor     1.25%     None
    Interest rate applicable margin     325-425 basis points, based on     200-300 basis points, based on
          leverage ratio     leverage ratio
    Unused fee 50 basis points 25 basis points if less than
    50% unused, 35 basis points if
                more than 50% unused
    Minimum fixed charge 1.75-2.0x 1.5x
    coverage ratio            
     

    Participating lenders for the secured credit facility include Barclays Capital, Regions Capital Markets, Credit Agricole Corporate and Investment Bank, UBS Securities and US Bank National Association. Barclays Capital and Regions Capital Markets acted as joint lead arrangers, Barclays Bank PLC as administrative agent, Regions Bank as syndication agent, with Credit Agricole Corporate and Investment Bank, UBS Securities and US Bank National Association acting as co-documentation agents.

    “We appreciate the support of our lenders as we continue to build Chatham into a premier owner of upscale, extended-stay and premium-branded, select-service hotels,” Craven commented. “With this amendment, our credit facility borrowing costs decrease by approximately 250 basis points which certainly augments our earnings going forward.”

    Dividend

    Chatham currently pays a quarterly dividend of $0.20 per common share. The annualized dividend represents a dividend yield of 6.1 percent, one of the highest in the industry, based on the company’s commons share closing price of $13.21 at the close of business on November 5, 2012.

    2012 Guidance

    The company provides guidance, but does not undertake to update it for any developments in its business. Achievement of the results is subject to the risks disclosed in the company’s filings with the Securities and Exchange Commission. The company’s guidance for the fourth quarter reduces the upper end of its adjusted FFO and FFO per share outlook for the full year to account for a more slightly modest RevPAR growth estimated for the fourth quarter as a result of the uncertainty surrounding the impact from Hurricane Sandy:

       
    Q4 2012 2012 Forecast
    RevPAR $98-$100 $105-$106
    RevPAR growth +3-5% +7.0-7.3%
    Net loss $(1.9)-$(1.5) M $(1.0)-$(0.7) M
    Net loss per diluted share $(0.14)-$(0.11) $(0.07)-$(0.05)
    Adjusted EBITDA $8.0-$8.5 M $40.5-$41.0 M
    Adjusted funds from operation ("FFO") $2.5-$3.0 M $17.8-$18.2 M
    Adjusted FFO per diluted share $0.18-$0.21 $1.28-$1.31
    Hotel EBITDA margins 34-35% 37.3-37.5%
    Corporate cash administrative expenses $1.5 M $5.4 M
    Corporate non-cash administrative expenses $0.5 M $2.0 M
    Interest expense $2.9 M $12.8 M
    Non-cash amortization of deferred fees $0.5 M $2.0 M
    Weighted average shares outstanding 13.91 M 13.91 M
     

    Funds from operations (FFO), Adjusted FFO (AFFO), EBITDA and Adjusted EBITDA are non-GAAP financial measures within the meaning of the rules of the Securities and Exchange Commission. See the discussion included in this press release for information regarding these non-GAAP financial measures.

    About Chatham Lodging Trust

    Chatham Lodging Trust is a self-advised REIT that was organized to invest in upscale extended-stay hotels and premium-branded, select-service hotels. The company currently owns 18 hotels with an aggregate of 2,414 rooms/suites in 10 states and the District of Columbia and holds a minority investment in a joint venture that owns 55 hotels with 7,282 rooms/suites.

    FFO As Defined by NAREIT and Adjusted FFO

    The company calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment write-downs, items classified by GAAP as extraordinary, the cumulative effect of changes in accounting principles, plus depreciation and amortization (excluding amortization of deferred financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it measures performance without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of real estate assets and certain other items that the company believes are not indicative of the performance of its underlying hotel properties. The company believes that these items are more representative of its asset base and its acquisition and disposition activities than its ongoing operations, and that by excluding the effects of the items, FFO is useful to investors in comparing its operating performance between periods and between REITs that also report FFO in accordance with the NAREIT definition.

    The company further adjusts FFO for certain additional items that are not in NAREIT’s definition of FFO, including acquisition transaction costs or other charges and adjustments for unconsolidated partnerships and joint ventures. The company believes that Adjusted FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs that make similar adjustments to FFO.

    EBITDA and Adjusted EBITDA

    The company calculates EBITDA as net income or loss excluding interest expense; provision for income taxes, including income taxes applicable to sale of assets; depreciation and amortization; and after adjustments for unconsolidated partnerships and joint ventures. The company believes EBITDA is useful to investors in evaluating its operating performance because it helps investors compare the company’s operating performance between periods and between REITs that report similar measures by removing the impact of its capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from its operating results. In addition, the company uses EBITDA as one measure in determining the value of hotel acquisitions and dispositions.

    The company further adjusts EBITDA for certain additional items, including acquisition transaction costs and other charges, non-cash share-based compensation and adjustments for unconsolidated partnerships and joint ventures, which it believes are not indicative of the performance of its underlying hotel properties. The company believes that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and between REITs.

    Although the company presents FFO, Adjusted FFO, EBITDA and Adjusted EBITDA because it believes they are useful to investors in comparing the company’s operating performance between periods and between REITs, these measures have limitations as analytical tools. Some of these limitations are:

    • FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect the company’s cash expenditures, or future requirements, for capital expenditures or contractual commitments;
    • FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, the company’s working capital needs;
    • FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect funds available to make cash distributions;
    • EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the company’s debts;
    • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
    • non-cash compensation is and will remain a key element of the company’s overall long-term incentive compensation package, although the company excludes it as an expense when evaluating its operating performance for a particular period using adjusted EBITDA;
    • Adjusted FFO and Adjusted EBITDA do not reflect the impact of certain cash charges (including acquisition transaction costs) that result from matters the company considers not to be indicative of the underlying performance of its hotel properties; and
    • Other companies in the company’s industry may calculate FFO, Adjusted FFO, EBITDA and Adjusted EBITDA differently than the company does, limiting their usefulness as a comparative measure.

    The company’s reconciliation of FFO, Adjusted FFO, EBITDA and Adjusted EBITDA to net income (loss) attributable to common shareholders, as determined under GAAP, is set forth below.

     
    CHATHAM LODGING TRUST
    Consolidated Balance Sheets
    (In thousands, except share and per share data)
       

    September 30,

    December 31,

    2012 2011
    (unaudited)
     
    Assets:
    Investment in hotel properties, net $ 396,666 $ 402,815
    Cash and cash equivalents 5,744 4,680
    Restricted cash 2,598 5,299
    Investment in unconsolidated real estate entities 15,052 36,003
    Hotel receivables (net of allowance for doubtful accounts of $22 and $17, respectively) 1,866 2,057
    Deferred costs, net 5,186 6,350
    Prepaid expenses and other assets   3,298     1,502  

    Total assets

     

    $ 430,410   $ 458,706  
     
    Liabilities and Equity:
    Debt $ 160,213 $ 161,440
    Revolving credit facility 48,500 67,500
    Accounts payable and accrued expenses 7,434 10,184
    Distributions payable   2,864     2,464  

    Total liabilities

     

      219,011     241,588  
     
    Commitments and contingencies
     
    Equity:
    Shareholders' Equity:

    Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at September 30, 2012 and December 31, 2011

    - -

    Common shares, $0.01 par value, 500,000,000 shares authorized; 13,909,822 and 13,908,907 shares issued and outstanding, respectively at September 30, 2012 and 13,820,854 and 13,819,939 shares issued and outstanding, respectively at December 31, 2011

    137 137
    Additional paid-in capital 240,118 239,173
    Accumulated deficit   (30,323 )   (23,220 )

    Total shareholders' equity

     

      209,932     216,090  
     
    Noncontrolling Interests:
    Noncontrolling Interest in Operating Partnership   1,467     1,028  

    Total equity

     

      211,399     217,118  

    Total liabilities and equity

     

    $ 430,410   $ 458,706  
     
     
    CHATHAM LODGING TRUST
    Consolidated Statements of Operations
    (In thousands, except share and per share data)
    (unaudited)
           
    For the three months ended For the nine months ended
    September 30, September 30,
    2012 2011 2012 2011
    Revenue:
    Room $ 25,337 $ 22,660 $ 71,778 $ 49,288
    Other operating 1,255 918 3,250 1,679
    Cost reimbursements from unconsolidated real estate entities   410     -     1,160     -  
    Total revenue   27,002     23,578     76,188     50,967  
    Expenses:
    Hotel operating expenses:
    Room 5,462 4,653 15,726 10,865
    Other operating   8,885     8,185     25,468     18,215  
    Total hotel operating expenses 14,347 12,838 41,194 29,080
    Depreciation and amortization 3,399 3,399 10,861 8,647
    Property taxes and insurance 1,918 1,623 5,174 3,723
    General and administrative 1,676 1,427 5,400 4,280
    Hotel property acquisition costs 24 2,104 108 3,587
    Reimbursed costs from unconsolidated real estate entities   410     -     1,160     -  
    Total operating expenses   21,774     21,391     63,897     49,317  
    Operating income 5,228 2,187 12,291 1,650
    Interest and other income 53 6 54 18
    Interest expense, including amortization of deferred fees (3,627 ) (3,087 ) (11,303 ) (4,503 )
    Loss from unconsolidated real estate entities   (195 )   -     (57 )   -  
    Income (loss) before income tax expense 1,459 (894 ) 985 (2,835 )
    Income tax benefit (expense)   39     (61 )   (61 )   (75 )
    Net income (loss) $ 1,498   $ (955 ) $ 924   $ (2,910 )
     
    Loss per Common Share - Basic:
    Net income (loss) attributable to common shareholders $ 0.10   $ (0.07 ) $ 0.05   $ (0.22 )
     
    Loss per Common Share - Diluted:
    Net income (loss) attributable to common shareholders $ 0.10   $ (0.07 ) $ 0.05   $ (0.22 )
     
    Weighted average number of common shares outstanding:
    Basic 13,819,371 13,766,297 13,808,172 13,115,439
    Diluted 13,908,907 13,766,297 13,896,486 13,115,439
     
    Distributions per common share $ 0.20 $ 0.175 $ 0.575 $ 0.525
     
     
    CHATHAM LODGING TRUST
    FFO and EBITDA
    (In thousands, except share and per share data)
             
    For the three months ended For the nine months ended
    September 30, September 30,
    2012 2011 2012 2011
     
    Funds From Operations ("FFO"):
    Net income (loss) $ 1,498 $ (955 ) $ 924 $ (2,910 )
    Loss (gain) on the sale of assets within the unconsolidated real estate entity 188 - (482 ) -
    Depreciation 3,380 3,381 10,805 8,604
    Adjustments for unconsolidated real estate entity items 1,262 - 3,787 -
           
    FFO 6,328 2,426 15,034 5,694
     
    Hotel property acquisition costs and other charges 24 2,104 108 3,587
    Adjustments for unconsolidated real estate entity items   -     -     42     -  
    Adjusted FFO $ 6,352   $ 4,530   $ 15,184   $ 9,281  
     
    Weighted average number of common shares
    Basic 13,819,371 13,766,297 13,808,172 13,115,439
    Diluted 13,908,907 13,766,297 13,896,486 13,115,439
     
     
     
    For the three months ended For the nine months ended
    September 30, September 30,
    2012 2011 2012 2011

    Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"):

    Net income (loss) $ 1,498 $ (955 ) $ 924 $ (2,910 )
    Interest expense 3,627 3,087 11,303 4,503
    Income tax expense (benefit) (39 ) 61 61 75
    Loss (gain) on the sale of assets within the unconsolidated real estate entity 188 - (482 ) -
    Depreciation and amortization 3,399 3,399 10,861 8,647
    Adjustments for unconsolidated real estate entity items 2,800 - 8,236 -
           
    EBITDA 11,473 5,592 30,903 10,315
     
    Hotel property acquisition costs and other charges 24 2,104 108 3,587
    Adjustments for unconsolidated real estate entity items - - 42 -
    Share based compensation 518 393 1,485 1,178
               
    Adjusted EBITDA   $ 12,015   $ 8,089     $ 32,538   $ 15,080  
     


    Logos, product and company names mentioned are the property of their respective owners.

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